Pakistan Banks: BOP - Clear road to narrowing discount!, (AKD Daily, Nov 18, 2019) - Coverage Initiation
We initiate coverage on Bank of Punjab (BoP) with a ‘Buy’ stance and a TP of PkR14.0/sh, implying an upside of 34.8% from last close. Capital reinforcements (Tier-I/II Cap raised in CY17/18: PkR6.1/4.3bn) of yesteryears coupled with higher interest rate driven earnings growth (CY20-22F CAGR: 15.7%) is likely to keep dividends healthy (CY20F dividend yield: 12.0% vs. 7.7% of our universe) at least in the medium run. Earnings growth is expected to be driven by, i) Gross NIMs swelling to ~4.4% over the medium term vs. 3.9% in 9MCY19, benefitting from structural alignment to interest rates and change in investment mix to longer tenor instruments, magnifying impact of branch expansion (158 branch added in the past 3y) and ii) one of the lowest administrative expenses/branch of PkR23.2mn across our banking universe despite being Government owned, which not only minimizes drain on core income (PBT/NII net of provisioning at 57.0% in 9MCY19) but also compensates for the higher cost of deposits (9MCY19 CoD: 7.0% vs. 6.0% of peers). Even after providing for cost of provisioning at 1.0%, BOP offers CY20-22F ROE of 20.1%. The stock is currently trading at a CY20F P/B of 0.52x, whereas taking peers’ valuation multiples in to consideration the stock should trade at a P/B of 0.8x based on ROE per unit of PB. Awaiting details regarding modalities of Treasury Single Account (TSA), we have incorporated 10% pa. withdrawal from CY23 onwards (Without TSA: TP PkR17.5/sh ceteris paribus).
(Detailed Report to be released soon)
Bank of Punjab is a commercial banking group based in Pakistan. Co. is engaged in the provision of commercial banking activities such as short term financing for working capital; financing under cash finance, demand financing, running financing and lease financing; equity underwriting; trust receipts; deposit taking; the provision of loans; foreign exchange transactions; investments and placements. In addition, Co. also acts as a clearing house for the transfer of bank funds throughout Pakistan.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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